Free factsheet: EIS at a glance

Seed Enterprise Investment Scheme

SEIS in a nutshell

Help start-up companies get off the ground and for every £1 you invest, save up to 64p in income and capital gains tax. You also qualify for IHT exemption, potentially saving up to another 40p per £1 you invest.

Downing Estate Planning Service

Downing’s Estate Planning Service is well established. It comes with an insurance option which could effectively make the portfolio IHT free from day one. It offers a choice of asset-backed and renewable energy investments which typically qualify for Business Property Relief (BPR). This means after two years they should be exempt from IHT.

Highlights

Insurance option effectively makes the portfolio IHT free from day one (conditions apply)

Alternatively investors have free downside protection which protects against falls in value of up to 20%

Choice of asset backed or renewable energy investments

4% p.a target return (not guaranteed)

Minimum investment £25,000

Important:The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.

The offer

The Downing Estate Planning Service seeks to provide a return after charges of 4% (not guaranteed). Its aim is to invest in unexciting companies which have the potential to offer predictable returns.

To achieve this, Downing offers a choice of investment in two trading companies – one asset-backed and one renewable energy – which in turn invest in a portfolio of 70+ companies. Downing invests and lends to the portfolio businesses which in their view provides additional protection. The equity provides potential upside and the loans give Downing control over the business, help create ongoing liquidity and help prevent external gearing.

The Downing team prefer to back known management teams it has invested with before. Downing takes a priority charge over the assets before the company’s own management, to give investors a better chance of getting their money back if things don’t go to plan.

Downing manages over £290 million in asset-backed businesses and has raised over £1.7 billion in investment overall.

Asset backed – Pulford Trading Ltd

Pulford Trading Ltd is the asset-backed company. It invests in businesses operating from freehold premises, such as hotels, care homes and data centres. These firms are chosen because they have relatively stable revenues and an asset that underpins the investment value, so in case things don’t go according to plan there will usually still be value in the freehold property.

Care homes are typically purpose built with 60-90 beds in what Downing consider to be decent areas. Downing likes investing in Scotland as there is an element of support from the state that isn't means tested. All their Scottish care homes are run by one management team. Prior to making an investment in a new facility, Downing conducts market research to establish demand and potential fee levels.

The lending side of Pulford Trading Ltd will typically provide development finance for student accommodation with a loan term of about 12-24 months. Downing is happy to take construction risk in a deal, however having first charge over the assets is essential.

What kind of companies are in the asset-backed portfolio?

Redcoats Farmhouse Hotel

Situated in the hamlet of Redcoats Green, the Redcoat Farmhouse Hotel offers 27 bespoke guest rooms in the Hertfordshire countryside. In 2017, Downing committed a £2 million secured loan to support the acquisition and redevelopment of four Grade II listed barns adjacent to the main site. The barns were restored and now serve as a wedding venue capable of hosting 120 covers.

Renewable Energy – Bagnall Renewables Ltd

Bagnall Renewables Ltd invests in renewable energy businesses, such as solar, wind, anaerobic digestion. These businesses provide risk-managed opportunities for investment, as they usually have predictable revenue streams and access to government-approved subsidies, although these could be withdrawn in future.

Downing prefers new building projects to existing ones that are already generating energy. This is due to the potential for higher returns. There has been a reduction in subsidies for new builds, however, which means existing projects are also considered. This service has to date only invested in UK renewable energy projects, however this is now being broadened to include reserve power projects.

Anaerobic Digestion plants (AD), which turn waste or food stock into energy, form the bulk of the renewable projects completed thus far as they offer the potential for higher long-term returns than other forms of renewable energy, according to Downing. All Downing’s AD plants use crops supplied under contract and turn it into energy, which helps achieve consistency. Other AD plants use waste food matter instead, which is more inconsistent. There are no new AD plants currently under consideration. As well as AD, solar, wind and hydro electricity generation also feature. A project will only be considered once planning has been achieved and connection to the grid agreed.

What kind of companies are in the renewable portfolio?

Wensum Solar LLP

Wensum Solar LLP has developed a 6.9MW solar photovoltaic (PV) portfolio with the capacity to generate enough energy to power the equivalent of 1,900 UK homes for a whole year. The portfolio is split between 32 rooftop installations and one ground-mounted installation that receives Renewable Obligation Certificates (ROCs).

Performance

The share
prices of the two companies are shown below: please note these are unlisted
companies and have been valued by Downing.

Source: Downing LLP to December 2018. The asset-backed portfolio (Pulford Trading) launched in February 2013 and the renewable energy portfolio (Bagnall Renewables) launched in March 2013. Performance data shown is net of all ongoing charges. Please note these are unquoted companies and the share price is based on Downing’s own valuation. Remember, these investments are illiquid and can be difficult to sell and value. Past performance is not a guide to the future.

Life Cover and Downside Protection Cover

Downing offers two forms of insurance.

The first is life cover, which is optional. You can opt to pay an extra 1.5% in annual charges for the first two years and 40% of your original investment (i.e. the amount that could be subject to IHT) is insured if you die within that period. The policy is in trust so any payout should be made outside your estate.

There are a few conditions – you need to be under 85 years when you invest and you need to confirm a few health details. The maximum insurance per individual is £100,000 (equivalent to a £250,000 investment).

The second is downside protection insurance. This is included at no extra cost where life cover is not chosen. It covers the first 20% of any losses (after charges) for those under age 90 at the time of death. The maximum claim is £100,000 per investor. The insurance policy is included (and paid for) by Downing for a minimum of two years. Other conditions apply.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

IHT portfolios are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.

Tax rules can change and benefits depend on circumstances. Eligibility for BPR is assessed at the date of death and will depend on the companies in the portfolio remaining qualifying. Broadly speaking, you will need to have held a BPR qualifying stock for at least two years and still hold it on death to qualify.

Fees and charges

A summary of the charges is shown below, based on the full initial charge of 4%. Please see the provider's documents for more details on the total fees and charges. If you would like a full breakdown of charges, or a personal illustration, please let us know.

Full initial charge

4%

Wealth Club initial saving

1%

Net initial charge through Wealth Club

3%

Annual management charge

0.5% plus VAT

Annual service charge

1.5% plus VAT

Extra charge for life cover (first two years)

1.5% plus VAT

Performance fee

20%

Minimum investment

£25,000

See example of the total charges over 5 years

An investment of £50,000 growing by 4.13% a year after charges (not guaranteed) might be worth £61,226 if you sold it after 5 years, after aggregated costs and charges. The comparative hypothetic value of this investment over the same period with no charges applied would be £71,083. In reality, all investments will incur charges. These figures are for illustration only.

There is an annual service charge of 1.5% and an annual management charge of 0.5%, however, the management charge reduces to 0% if the target of 4% p.a. is not achieved. There is a performance fee of 20% of returns over 4% compound per annum, charged at exit. In addition, Downing may receive arrangement and monitoring fees from the underlying investments, unless they are only lending money. Arrangement fees are capped at 2%. Monitoring fees are capped at 0.5% each year. Wealth Club will receive initial commission (1%) and trail commission (0.75%) from the product provider. Wealth Club’s commission is paid out of the initial and annual management charges, so there is no additional cost to you.

Without life cover the annual management charge is 0.5% which includes the free downside protection. If you choose life cover, there is an additional 1.5% for the first two years and then it reverts to 0.5% as usual. Please see the provider's documents for more details on the total fees and charges. If you would like a full breakdown of charges, or a personal illustration, please let us know.

These figures are for illustration only. Data as at August 2018, provided by Downing.

Our view

This is a well-established service which has delivered consistent returns to investors to date, although past performance is not a guide to the future. One downside to this investment is the performance fee – somewhat unusual in inheritance tax products. That said, the overall fee structure is competitive and the insurance cover makes this an interesting offer.

Important

The Chancellor has requested a review of a range of aspects of IHT to simplify the tax system. The review timescales, its scope and impact are unknown. Currently, investments qualifying for Business Property Relief should be free from IHT after two years. Tax rules can and do change and benefits depend on circumstances.

Wealth Club aims to make it easier for
experienced investors to find information on – and apply for
– tax-efficient investments. You should base your investment decision on the
provider's documents and ensure you have read and fully understand them before
investing. This review is a marketing communication. It is not advice or a
personal or research recommendation to buy the investment mentioned. It does
not satisfy legal requirements promoting investment research independence and
is thus not subject to prohibitions on dealing ahead of its dissemination.

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The investment products on this website are not for everyone. They are generally higher risk and require a longer investment term. You may get back less than you invest. It is therefore important that you understand the Risks and Commitments of these products.

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